Pay Attention to Interest Rates to Avoid Big Losses
Unless you want to lose your shirt as an investor, you better watch interest rates closely and act accordingly.
Even if you are a conservative investor, you better keep an eye on interest rate trends.
Nothing affects investments more than the level of, and trend in, rates of interest in our economy and around the world.
When rates go up aggressively, the vast majority of investors take a financial bath.
Few average investors will be prepared when interest rates go north, because few of them ever experienced such an economic environment ...
with a substantial amount of their money on the line in stocks, bonds, and mutual funds.
By late 2008 the economic crisis was severe, with rates of interest at historical lows.
Then most rates started climbing.
By June of 2009 they were still very low by historical standards, especially short-term rates, but longer-term interest rates were still climbing.
What would happen if the world were to lose faith in the USA's ability to back up its trillions in debt owned by investors throughout the world in the form of T-bills, T-notes and T-bonds? Interest rates would soar, as investors large and small sold these securities to get their money back.
In other words, no one would be willing to keep their money invested in U.
S.
debt unless they got a healthy rate of interest for the risk they were taking.
For this to happen, the price of these securities would need to fall significantly.
Take a deep breath and try to relax, because this probably will not happen anytime soon.
But rates could go up substantially, even without a meltdown in U.
S.
government securities.
It's happened before, in both the early 1970's and early 1980's.
Few investors saw it coming, and many took big losses in both bonds and stocks.
When rates rise, bond prices fall.
The value of a bond investment will fall as interest rates in the economy go up.
Period.
Stocks will have their own troubles if rates go up substantially.
The higher cost of borrowing money will hurt corporate profits by increasing the expenses associated with debt.
Corporations borrow money on an ongoing basis.
Plus, high rates of interest decrease sales and hurt profits, as consumers pull back on credit purchases.
When corporate profits hit the skids, stock prices go down the tubes as well.
So, how does the everyday investor avoid getting beat up when interest rates take off? How do smart investors make big profits with rates heading up and stocks and bonds falling? Conservative investors who are in-the-know hide in CASH EQUIVALENTS like T-bills, money market mutual funds, or even short-term bank CDs.
This is playing defense, but it's safe and better than taking big losses in bonds and stocks.
Smart investors pay close attention to ALTERNATIVE investments.
In other words, when investors are pulling money out of stocks and bonds, they either put it someplace safe (cash equivalents or savings products like CDs), or they search for real growth (profits) someplace else.
Alternative investments are this "someplace else".
Alternative investments include real estate, gold, silver, oil, other commodities, foreign investments, tangibles, and the list goes on.
The point is this: Money that comes out of stocks and bonds will be invested someplace.
And wherever it goes in heavy volume, prices will rise.
For example, when big investors start plowing their money into oil commodities contracts, the price of oil takes off.
Gas prices follow.
As a small investor you can play the game as well ...
on a much simpler, smaller level.
First, follow the financial news and price trends.
If stocks and bonds are getting nailed, where is the action going? In other words, what's going up? There are numerous ETFs (exchange traded funds) and specialty stock funds that track many of these alternative investment sectors.
Examples include oil, gold, foreign stocks and real estate.
You can invest in these funds for as little as a few hundred (ETFs) or a couple of thousand bucks.
How easy can investing get? If you see oil prices start to head upward, you can just buy an ETF that invests in the oil sector, or a mutual fund that specializes by holding oil stocks.
If prices continue to rise, your investment should increase in value as well.
Keep one eye on interest rates, OR ELSE your life as an investor will be a bumpy road.
Rates of interest can change drastically, and when this happens most average investors don't know their alternatives.
They just hold on to the bonds and stocks they've got, and they lose money if rates spiral upward.
Then, as their losses mount, they capitulate and throw in the towel.
Pay attention to interest rates, or else you too will end up taking some heavy losses, sooner or later.
Even if you are a conservative investor, you better keep an eye on interest rate trends.
Nothing affects investments more than the level of, and trend in, rates of interest in our economy and around the world.
When rates go up aggressively, the vast majority of investors take a financial bath.
Few average investors will be prepared when interest rates go north, because few of them ever experienced such an economic environment ...
with a substantial amount of their money on the line in stocks, bonds, and mutual funds.
By late 2008 the economic crisis was severe, with rates of interest at historical lows.
Then most rates started climbing.
By June of 2009 they were still very low by historical standards, especially short-term rates, but longer-term interest rates were still climbing.
What would happen if the world were to lose faith in the USA's ability to back up its trillions in debt owned by investors throughout the world in the form of T-bills, T-notes and T-bonds? Interest rates would soar, as investors large and small sold these securities to get their money back.
In other words, no one would be willing to keep their money invested in U.
S.
debt unless they got a healthy rate of interest for the risk they were taking.
For this to happen, the price of these securities would need to fall significantly.
Take a deep breath and try to relax, because this probably will not happen anytime soon.
But rates could go up substantially, even without a meltdown in U.
S.
government securities.
It's happened before, in both the early 1970's and early 1980's.
Few investors saw it coming, and many took big losses in both bonds and stocks.
When rates rise, bond prices fall.
The value of a bond investment will fall as interest rates in the economy go up.
Period.
Stocks will have their own troubles if rates go up substantially.
The higher cost of borrowing money will hurt corporate profits by increasing the expenses associated with debt.
Corporations borrow money on an ongoing basis.
Plus, high rates of interest decrease sales and hurt profits, as consumers pull back on credit purchases.
When corporate profits hit the skids, stock prices go down the tubes as well.
So, how does the everyday investor avoid getting beat up when interest rates take off? How do smart investors make big profits with rates heading up and stocks and bonds falling? Conservative investors who are in-the-know hide in CASH EQUIVALENTS like T-bills, money market mutual funds, or even short-term bank CDs.
This is playing defense, but it's safe and better than taking big losses in bonds and stocks.
Smart investors pay close attention to ALTERNATIVE investments.
In other words, when investors are pulling money out of stocks and bonds, they either put it someplace safe (cash equivalents or savings products like CDs), or they search for real growth (profits) someplace else.
Alternative investments are this "someplace else".
Alternative investments include real estate, gold, silver, oil, other commodities, foreign investments, tangibles, and the list goes on.
The point is this: Money that comes out of stocks and bonds will be invested someplace.
And wherever it goes in heavy volume, prices will rise.
For example, when big investors start plowing their money into oil commodities contracts, the price of oil takes off.
Gas prices follow.
As a small investor you can play the game as well ...
on a much simpler, smaller level.
First, follow the financial news and price trends.
If stocks and bonds are getting nailed, where is the action going? In other words, what's going up? There are numerous ETFs (exchange traded funds) and specialty stock funds that track many of these alternative investment sectors.
Examples include oil, gold, foreign stocks and real estate.
You can invest in these funds for as little as a few hundred (ETFs) or a couple of thousand bucks.
How easy can investing get? If you see oil prices start to head upward, you can just buy an ETF that invests in the oil sector, or a mutual fund that specializes by holding oil stocks.
If prices continue to rise, your investment should increase in value as well.
Keep one eye on interest rates, OR ELSE your life as an investor will be a bumpy road.
Rates of interest can change drastically, and when this happens most average investors don't know their alternatives.
They just hold on to the bonds and stocks they've got, and they lose money if rates spiral upward.
Then, as their losses mount, they capitulate and throw in the towel.
Pay attention to interest rates, or else you too will end up taking some heavy losses, sooner or later.